Arbitrage, Regulatory

Regulatory arbitrage refers to the practice of organizations seeking out jurisdictions that impose the lightest regulatory burden when they are deciding where to set up operations or activities. Regulatory arbitrage can refer to activities from organizations seeking the most favorable tax treatment to locating plants in jurisdictions with lax environmental and labor codes. This has led to what some have labelled a race to the bottom by jurisdictions.

Jurisdictions do compete. Burger King’s move to Canada and other tax inversion deals provide ample evidence of this. The competition to attract head offices of financial institutions (FIs) and the accompanying high-paying jobs provide additional evidence as well. The deliberations by HSBC in the mid-2010s on where to locate their head office in light of rising regulatory costs ...